Talk of cash returns in the wake of the £5.2 billion merger of Tui Travel with its German parent sent the tourism business flying to the top of the FTSE 100 leaderboard yesterday.
Shares in the group jumped 17.1p, or 4.7%, to 384p on hopes the deal, which was agreed on Monday, would lead to as much as €2 billion (£1.6 billion) being channelled back to investors, The Telegraph reported.
Tui Travel was the biggest riser in the FTSE 100 that itself rose 38.39 points to 6,819.29.
Morgan Stanley analyst Jamie Rollo told clients: “The planned disposal or demerger of some non-core businesses, plus the strong balance sheet post the expected conversion of £750 million of Tui Travel convertible bonds to equity, could pave the way to a €1-2 billion cash return at some point, 15-30% of the market cap.”
He upgraded his recommendation on the stock to “overweight”, from “equal weight” and forecast that “Future Tui”, which will be listed in London and will likely be a member of the blue-chip index, was worth 500p a share.
Although the transaction has been described by both companies as a “nil premium” merger, Tui Travel chief executive Peter Long has insisted that existing investors in the FTSE 100 group will receive an “implicit” premium.
Rollo estimated that the “value transfer” from the German company to the British group meant that shareholders would indeed enjoy a 21% premium.
Traders said that many investors sat on their hands amid caution ahead of the result of the Scottish referendum, which is expected before the market opens.